 Hello and welcome to this session. This is Professor Farhad and this session we would look at gift tax simulations Gift tax is a topic that I covered in the prior session. Now. We're going to look at exercises. Hold on a second Didn't you just set simulations? And now you're saying exercises. Well, let me tell you something tax simulations It's they're exactly as exercises and I'm going to explain how when I go over the exercise So make sure to remember when you're working exercises in college, you are preparing for your CPA actual simulation This topic is covered in the corporate income tax course the CPA exam regulation section as well as the enrolled agent exam As always, I would like to remind you to connect with me on LinkedIn if you haven't done so YouTube is what you would need to subscribe. I have 1600 plus Accounting, auditing, tax and a finance lectures. This is a list of all the courses that I cover If you like my lectures, please like them. Click on the like button. It doesn't cost you anything Share them put them in playlist and please connect with me on Instagram on my website You'll have access to additional resources such as through false multiple choice additional exercises Quasi CPA simulations and if you're studying for your CPA exam 2000 plus CPA questions So let's take a look at the first question or the first simulation and let me tell you how am I going to take this? And turn it into a simulation. Okay, during the year Rajiv makes the following transfer and the question is which of these transfer are subject to the federal income tax now Here they gave you a statement one thousand to his employer reelection campaign So on the exam they could give you this information and they can tell you whether it's yes Or no in the amount so this is one way they can ask you the question Okay, or rather than giving you the statement one thousand to his mayor reelection campaign They can show you a cancelled check They can show you an exhibit with a cancelled check of a thousand dollar pay payable to the mayor and in the memo reelection campaign So that's an exhibit and you'll be like whoa exhibits are difficult. Well, not really They're giving you the same information in a different format so they can ask you the question in more than one way So let's go back to the question itself Well, is this subject to the gift tax and the answer is no remember that political contribution if you're Contributing to the mayor's reelection. That's not subject to the gift tax. Let's look at number two 21,000 to his aunt Ava to reimburse her what she paid for the hospital for the gall goldbladder operation Now they can give you a statement like this or they can give you a Hospital bill with the amount of 21,000 really scary-looking hospital bill and they can show you a check that you pay to And Ava the question here regardless is is this Subject to the gift tax and the answer is yes, and you make hold on a second Wasn't this for a medical purpose? Why is it taxable? The reason is this? Because what the Rajaf did he paid his end directly so If he paid his end directly he paid her 21 He has he can exclude 8 and 15,000 for the annual exclusion and what's left subject to the gift tax is 6,000 he's gonna have to add this amount to his total gift tax for his lifetime Let's look at the third option 18,000 paid directly to the surgeon who performed the operation now There's a difference between the second scenario and the third scenario and here what they could also give you I don't want to keep beating a A dead horse they could give you for example email Him email and the surgeon tell him the surgeon. I'll pay you directly. Don't worry Don't bill my aunt or they could just give you the statement Okay, or they can give you a phone conversation between the surgeon and the Rajeev say don't worry make do the operation I will cover my aunt now for this 18,000. This is different than this 21,000. Why? Here ever is not getting the cash the cash is going directly to the doctor to the medical Operation under those circumstances. That's not that's excluded from the gift tax. That's executed Therefore, he doesn't have to add the amount to the to his gift of the lifetime gift tax 22,000 to purchase a use card for his son to use at college now. This is we don't have enough information so we're gonna make two assumptions and We'll take it from there to answer the question 22,000 to purchase a car for his son generally speaking. That's a gift and it exceeds It exceeds 15,000 or if this is part of child support obligation by the state law that it's not So if this 21,000 is considered child support under the state law Then it's not a gift but here. We're not told anything So if it's a generally just 22,000, then yes, that's a gift. Therefore, you know, again of the 22,000 Assuming that's the only gift he gave to his son this year. He can execute 15 and what's left is seven I remember this 15 could change every year due to inflation Congress readjustment so on and so forth. Okay, let's take a look at this simulation in 2013 again, just gonna go back here I don't want to keep beating that horse but rather than giving you this information I can give you the closing an exhibit with the closing cost for the car and maybe an email between the son and the father I like to buy this car. Well son, you know, I can only you know, pay up to 22,000 Well buy this car for me and yeah So it's it's it's like it's an email or a phone call between the son and the father But the point is you paid a car for you pay $22,000 for the car Okay, so the simulation they try to make it look intimidating But as long as you know the concepts, you'll be able to tackle it in 2013 and With 200,000 Alice purchase certificate of deposit an investment at the bank listing Title follow Elise payable on proof of death to Clark show once Elise dies and somebody could show the proof The money goes to Clark Elise dies in 2020 and Clark, which is the nephew redeems the CD now Which is worth 205 this regarding the annual execution. What's Elise's gift in to Clark in 2013? Let's start with 2013 When Elise gave the gift Well in quote a gift really was this a gift and the answer is no Okay, why because the nephew did not have access to the did not have access immediately. It's not present gift It's not present gift. Therefore. It's not a gift. Therefore in 2013. There's no gift because no There's no present interest that Ali Clark can can use the money. They can't use the money. So that's how 2020 is this a gift and you're gonna say yes And the answer is no, so why well, here's why The transfer by death is not a gift the transfer by by death is an estate tax It's subject to the estate tax, which is something we did not talk about we're gonna talk about in the next Session so when Elise's die and the money goes to Clark it's after her death. It's no longer part of the gift tax Since after that we talked about that that gift after that It's an estate tax when somebody gets a gift after tax So just kind of planting the seat for the next recording, right about the estate tax good Let's take a look at this question Christian wants to transfer as much as possible to his four adult married children Including spouses, which is it means eight and eight minor grandchildren. So we have eight minor grandchildren without using any unified Transfer tax credit now What do we mean without using the unified the transfer tax a credit? It means give them up to a point where you don't have to report anything. It doesn't add to your gifts Well, the amount for 2019 that we are dealing with is 15,000 Okay, guess what if it's 15,000 and we have four kids and Four adults with their spouses. That's four plus four eight and eight great grandchildren That's we're gonna take this amount multiplied by 16. What does that mean? It means Christian can contribute up to 240,000 No questions asked. Nobody will Question Christian doesn't have to report it doesn't have to do anything. Why because for each individual they gave 15,000 That's it. Now the second question. What if Christian's wife Mia joins the gift? What if it joins the gift we can double it and this is the power of Gift splitting. Okay, we're both given the gift so we can double it. So they could give together Almost half a million. No questions asked. They don't have to report it. They don't have to pay taxes They don't have to do anything about it Let's take a look at this question. Noah and Sophia want to make a maximum contribution to their state qualified tuition program on behalf of their Mineral granddaughter Amanda without exceeding the act the annual federal tax Exclusion, okay, what's the annual federal tax exclusion without getting the unified tax credit involved again for our purposes is 15 Now you could be viewing this lecture in 2022 2023 and this 15,000 could be 17 could be 18 I don't know if the inflation kicks in could be 20, you know, who knows? Okay, if the president is reelected could be anything all right or not reelected could be anything But the point is we're using 15 because that was the effect the limit the annual execution and effect when I'm doing this recording So this is the annual federal tax exclusion But what we have to be aware of here is this is a 529 plan for that what 529 plan The government allows you what's called the front loading. It's not there is no terms front loading or just make it up front loading means you can put Five year upfront this way your money grows upfront without without without Without being without being subject to any gift tax Okay, so so what does that mean? It means if Noah and Sophia they want to do so there are two individuals Okay, so there are two individuals. So we're talking about $30,000 and we could upload five years so they can contribute up to 150,000 Okay today Without incurring any federal gift tax. They don't have to worry about this But after they do so they have to wait five years until they can give Amanda any money So they can use it up up. They can use it up front. They can as I said front load it I'm not sure if the word front loaded is the correct word, but you guys get my point They allow you to take it make it now. Why not? So so this money will grow early. So the earlier you invest the more At the time value of money the more you will have in five or ten or fifteen years They don't tell us how old is Amanda when she's when she's ready to go to college But that's the point. Okay now the next session We're gonna look at the related topic and that's gift after death or a state tax It's not gift after tax. Basically state tax is after the individual passes away No, oh always I would like to remind you to please like my lectures share them And if you're studying for your CPA exam check out my website It doesn't cost you anything to check it out. Look at it. Remember if you're studying for your CPA You're making an investment of 20 to 30 years Invest properly and I know this topic it's not Properly taught in most colleges sometimes it's not taught at all. So Here we go. I'm trying to help out. Good luck and study hard